Realizing Labor Standards
How transparency, competition, and sanctions could improve working conditions
worldwide.

Archon Fung, Dara O'Rourke, and Charles Sabel

This past fall, Nike was accused of using child labor in Cambodia. Not
long before, Adidas was accused of using prison labor in China and sweatshop
workers in El Salvador. Timberland, which trumpets its socially responsible
business practices, was accused this year of employing sixteen-year-old
girls in China, working them 98 hours per week, paying only 22 cents
per hour, and all the while exposing them to toxic chemicals. New Balance
has been criticized recently for anti-union practices and now produces
the majority of its shoes in China, where independent unions are illegal.

Even "buying American" can mean paying for sweatshop labor. There are
an estimated five thousand illegal, unregistered sweatshops in Los Angeles
alone that label their products "Made in the USA." Only a few years
ago, a company producing clothing for Mervyn's, Montgomery Ward, and
BUM International, and selling their US-labeled products on the racks
of Macy's, Robinsons-May, and Filene's department stores, was found
to employ Thai immigrant women who were working in virtual slave-labor
conditions. And this company had recently passed a Department of Labor
(DOL) inspection.

These conditions are repellent, and they have provoked a diffuse but
insistent protest movement for international workers' rights. Resembling
earlier social movements—for civil rights, women's equality, and
environmental protection—the movement for workers' rights has
already caught the attention of the public worldwide, and has provoked
responses from multinational corporations, international organizations
like the International Labor Organization (ILO) and the World Bank,
and domestic regulatory authorities. And it has led to important but
fragile cooperation between student groups, nongovernmental organizations
(NGOs), and established trade unions.

Here, we propose a strategy for strengthening labor standards—norms
that describe acceptable conditions of work and wages—that builds
on, and connects, these disparate efforts. We call this approach "Ratcheting
Labor Standards" (RLS). It charts a course beyond conventional top-down
regulation based on uniform standards on one hand, and reliance on voluntary
initiatives taken by corporations in response to social protest on the
other. A public debate has already emerged about how workplaces in the
global economy should operate. The central aim of RLS is to create a
transparent environment for that debate.

RLS would do two things. First, it would use monitoring and public
disclosure of working conditions to create official, social, and financial
incentives for firms to monitor and improve their own factories and
those of their suppliers. Second, it would create an easily accessible
pool of information with which the best practices of leading firms could
be publicly identified, compared, and diffused to others in comparable
settings. We argue that the combination of firm-level incentives and
an infrastructure for pooling results would help to set provisional
minimum standards of corporate behavior, upon which competition—driven
by social and regulatory pressures—would generate improvements
that then "ratchet" standards upward.

Consider how RLS would work in the apparel industry. Firms operating
in international markets, like Nike or the Gap, would be required to
adopt a code of conduct and to participate in a social monitoring program.
A firm would select a monitor from among NGOs or auditing companies
that provide this service. The monitor would score the firms it regularly
inspects according to their compliance with a code of conduct and their
ability to correct violations. The monitor would report its findings
to the firm and to the certifying agency to which the firm is a member.

The monitor would also report its findings to a "super monitor," an
umpire constituted by international organizations such as the World
Bank and the ILO, together with NGOs and international confederations
of trade unions. This umpire organization would monitor the monitors,
conduct inspections to verify their integrity, assure the comparability
of monitoring data and methods, and make results accessible to the public.

By creating an umpire that opens social auditors and firms to public
scrutiny, this framework would extend and transform many current efforts
to advance labor standards. Firms that depend on consumer loyalty would
be eager to earn high grades. They would pressure less visible suppliers,
and suppliers of suppliers, to follow suit. Activists, consumer groups,
financial analysts, journalists, and many others would use RLS information
to identify leaders and laggards in labor practices, press for improvements,
establish norms of acceptable behavior, and pressure the monitors themselves
to improve their auditing methods and to make their standards more demanding.
Eventually NGOs, trade unions, or regulatory agencies might become monitors
in this system. This would allow them to demonstrate the quality and
reliability of the services they provide and to learn systematically
from their peers.

Stepping back, the large purpose of RLS is to secure the most ambitious
and feasible labor standards for workers given their economic development
context. Standards emerge by comparing similarly situated facilities.
The labor practices of a facility in Vietnam might be compared to one
in Indonesia, but not initially to a European or North American facility.
In this way, RLS encourages the incremental realization of demanding
labor standards over time without imposing a uniform, and potentially
protectionist, standard upon diverse contexts. By publicizing workplace
conditions and practices, RLS enables society to sort out the abhorrent
from the acceptable and shift its production methods from the former
to the latter.

New Opportunities
Two recent developments in the organization of work account for many
of the shortcomings of traditional strategies for dealing with the problem
of labor standards, even as they create new regulatory opportunities:
first, the increasing decentralization of production into tiered networks
of supply chains that span the globe; second, the related recomposition
of what is often called the informal sector.

It is no longer easy to determine where products as simple as baseball
caps and sweatshirts or as complicated as computers and automobiles
are made. That is because most name-brand manufacturers now market products
that are co-designed and produced by networks of contractors and subcontractors.
These networks obstruct accountability as much by their flux as by their
intricacy. Manufacturers of products such as garments regularly switch
countries, or even continents, as they switch suppliers. Far too many
manufacturers hide behind these sprawling chains of ownership to deny
responsibility for the factories that produce their goods.

But even as regulators lose oversight, corporations have markedly increased
their ability to monitor suppliers. Relations between customers and
suppliers were traditionally arms-length attachments made and broken
solely on the basis of prices, which were often just a reflection of
wage levels. Under contemporary globalization, these relationships are
increasingly based on careful and continuous assessments of firms as
potential partners who must provide not only cheap labor, but also product
and process improvements that increase competitiveness for the whole
production chain. The most sophisticated firms manage their supply chains
by ranking suppliers according to their capacities as co-developers
and their ability to meet quality, logistical, and diversity goals.
Suppliers must show increasing capabilities to maintain and increase
their status in these hierarchies.

Now focused on increasing profit and product quality, these supply-chain
practices can potentially be used to improve labor standards. In contemporary
footwear production, for example, the largest supplier is a Taiwanese
firm called Pou Chen. This conglomerate produces for, among others,
Nike, Reebok, Adidas, Fila, Puma, and Timberland. Because of consumer
awareness and advocacy pressures, the brands now work closely with Pou
Chen to improve labor conditions in their factories. They send their
own internal compliance staff to evaluate Pou Chen facilities and hire
external auditors to measure whether Pou Chen is meeting their codes
of conduct. Some brands then rank these suppliers—including Pou
Chen's competitors—by measures that reflect labor and environmental
conditions. Though incorporating social considerations into contemporary
supplier management strategies is still rare, a central goal of RLS
is to make it more widespread.

The second important development is the persistence, and often the
expansion, of the informal sector: women pieceworkers stitching baseball
covers in their homes, street vendors selling piece goods on behalf
of large distributors, skilled artisans working wood, stone, metal,
or plastic with simple machines, brickmakers supplying small construction
sites. Although exact numbers are hard to come by, evidence suggests
that informal-sector workers in general, and women workers who are based
at home in particular, account for a significant share of employment
in export industries in developing countries.1

Transformations of global supply chains have also recast these activities
in ways that both obstruct familiar forms of accountability and open
the way to new ones. Competition from world-class firms and from the
import of secondhand products from richer economies can push weak domestic
producers into the informal sector and increase competition there. This
undoes the unwritten rules of the informal sector—the social conventions
and practices framing wages, business relationships, and working conditions—diminishing
whatever social accountability there was.

But improbable as it seems at first glance, this effect may be partially
offset by changes connected to new supplier relations. The same logistical
and quality standards that govern global production generally govern
subcontracting from the formal sector to the informal sector today.
Customers in the formal sector usually use their superior bargaining
power to make informal-sector producers pay the costs of failing to
meet quality and timeliness requirements.

But the most ambitious and capable among the informal producers see
that they can get ahead by mastering the same disciplines of process
control, monitoring, and innovation that yield such large returns for
their partners in the formal sector. Already, operators in the informal
sector are becoming familiar with relevant technical protocols, just
as many of them gained expertise in secondhand machinery long ago.

The distance between the formal and informal sectors is thus not as
great as it at first appears. Many informal producers are not only connected
to global production chains through their goods, but also potentially
through organizational practices that bridge the formal/informal divide.
These connections may allow the most able informal firms to cross that
gap in time. Those that do may be subject to regulatory mechanisms that
are emerging in the formal sector.

New Ways to Regulate
Labor and environmental regulators have noted these structural changes
and developed programs that take into account the organization of modern
supply chains, the vulnerabilities for firms that result from them,
and new forms of public pressure generated in part by the new regulatory
regime.

One example that underscores the growing importance of supply-chain
dependencies is the labor department's decade-old "No Sweat" program,
which has raised labor standards compliance in the garment sectors of
New York, San Francisco, and Los Angeles.2
Much of the work of cutting, sewing, and packaging clothing is done
by immigrants in sweatshops employing one to two dozen workers. Thousands
of fly-by-night operations have long scoffed at inspections, sanctions,
and other familiar methods to ensure compliance.

But when retailers and manufacturers adopted "lean retailing" and "just-in-time"
production techniques to lower costs, reduce cycle times, and shrink
inventories, they also opened themselves to clever regulators in two
ways. First, regulators could stop business along the entire supply
chain by stopping it at any one point. The obscure "hot cargo" provision
of the 1938 Fair Labor Standards Act gave them the power to do just
this. This provision makes it unlawful for any person "to transport,
offer for transportation, ship, deliver, or sell in commerce …
any goods in the production of which any employee was employed in violation"
of the Act.

Second, because "lean retailing" methods increase communication and
control between firms, regulators could use this leverage to make large
firms responsible for the behavior of their smaller suppliers. So, when
regulators catch small firms in violation of labor law, they now often
use their power of delay to compel retailers and large manufacturers
to sign "Compliance Monitoring Agreements," under which firms agree
to monitor, usually through third-party social-auditing firms, the compliance
of their small supplier shops. By 1999, nearly half of contractor shops
in New York, San Francisco, and Los Angeles were covered by such agreements,
and shops covered by such agreements tend to comply with wage and hours
regulations more often than those that are not.

Three innovations in environmental regulation offer further lessons
for labor regulators.

The Massachusetts Toxics Use Reduction Act (TURA) builds on capabilities
for self-monitoring and continuous improvement that firms must regularly
acquire in order to compete. The act requires hundreds of firms that
produce or release certain amounts of listed toxics to develop "Toxics
Use Reduction Plans." In preparing these plans, engineers, managers,
and workers typically work in teams to review possible ways to reduce
the plant's reliance on toxic inputs, its generation of toxic by-products,
and the danger of toxic releases to the environment. Studies suggest
that this mobilization of local knowledge and expertise generates far
more effective pollution prevention and toxics reductions than regulators
would have thought feasible. Indeed, many plans yield not only environmental
improvements but also financial savings; and though firms are not required
to implement their plans, many do so because of the compelling advantages
that legally imposed self-examination reveals.3

A related Massachusetts program called "Environmental Results" also
encourages firms to develop their own compliance and improvement strategies,
but aims at thousands of dry cleaners, printers, photo developers, and
auto-body operations. What makes the program relevant here is that,
for regulators, these small enterprises are equivalent to operations
in the informal sector: government agencies are often unaware of their
existence and lack the resources to inspect them. Instead of traditional
inspection, regulators pursue outreach and capacity-building. Working
through industry associations to locate and contact these small businesses,
regulators provide each firm with workbooks detailing the steps necessary
to reach environmental compliance. Firms are then required to certify
to regulators that they have followed these steps. Evaluators estimate
that this program has increased the number of firms known to regulators
fivefold, and that it has accomplished substantial reductions in the
emissions of hazardous and smog-producing air pollutants.4

Other related environmental strategies produce information that allows
the public to make well targeted demands for corporate reform. Perhaps
the oldest and best known is the US Toxics Release Inventory (TRI).
Begun in 1988, the TRI requires some 23,000 facilities to report annually
their releases of some 650 chemicals to a publicly accessible database.
This information is used by ordinary citizens, activists, journalists,
and managers, among others, to identify firms that pollute heavily.
These "dirty" companies often become the subject of bad publicity, punishment
in financial markets, and direct citizen action.5
Firms both respond and pre-empt these critics by reducing their use
and release of TRI chemicals. Though causation is difficult to assign,
some evidence shows that TRI has contributed to some of the 1.5 billion
pound (that is, 45 percent) reduction in releases of listed chemicals
between 1988 and 1998.6 Though the TRI is
the largest of these "information-based" disclosure efforts, programs
that rely on publicity, information, and citizen response have also
been initiated in Western Europe, Indonesia, the Philippines, and other
countries.7

The "No Sweat" regulatory program depends on the threat of severe penalties—a
threat that is now more credible because of the high costs of supply-chain
disruption. But TRI, TURA, and "Environmental Results" (via the participation
of publicity-sensitive trade associations) depend on the concern of
citizens for their environment. Is there similar public concern for
the welfare of (often distant) workers?

Ethical Consumerism
The most direct evidence of public concern about harsh labor conditions
comes from surveys of consumer preferences and willingness to pay premiums
based on the social and ethical character of firms and their production
processes. In 1999, Marymount University's Center for Ethical Concerns
conducted a telephone survey8 of US consumer
attitudes about garment production. Three-quarters of the respondents
reported that they would avoid shopping at a retailer whom they knew
to sell garments made in sweatshops. Eighty-six percent report that
they would pay an extra dollar on a twenty dollar garment if they could
be sure that it was made under non-sweated conditions. Similarly, a
survey conducted in 1998 found that "80 percent of respondents said
that they would not buy products made under poor conditions or that
they were willing to pay more if they knew the items were made under
good conditions."9

Environics International conducted a massive study of international
opinion on these questions in 1999. The survey asked 25,000 individuals
in 23 countries for their attitudes about corporate social responsibility.
Though respondents from North America and Western Europe felt more strongly
than those from developing nations, large minorities everywhere felt
that major companies had responsibilities as ethical and social leaders.
In North America, 51 percent of respondents reported punishing a company
for being socially irresponsible in the past year, while 39 percent
of Northern European respondents claimed to have done so.10

The emergence of ethical consumerism includes not only labor and product
concerns, but also investment choices. Over the past decade, socially
responsible investing has grown dramatically and far outpaced the expansion
of investment generally. Between 1995 and 1999, the total assets in
mutual funds utilizing "social screens" that exclude firms that produce
tobacco, manufacture firearms, or degrade the environment grew almost
tenfold, from $162 billion to $1.5 trillion. At the end of 1999,
one out of every eight dollars under professional management in the
United States was part of a portfolio claiming to be socially responsible.11

Corporations and NGOs
Skeptics may doubt that survey responses translate into choices at the
shopping mall, but high-profile multinational corporations take the
polling data seriously. Prodded by the opinions it reveals, as well
as by activist campaigns, boycotts, campus protests, and media exposés,
companies like Nike, the Gap, and Levi's act as though they assume consumers
care about social conditions and consequences of production processes.
Labor and environmental considerations have been added to the long list
of dimensions on which they compete for a share of the market.12

Some of these firms have responded directly to public pressure by incorporating
labor and other social priorities into the protocols by which they manage
production in their supply chains. All of the main garment, shoe, and
toy companies—Nike, Reebok, Adidas, Levi's, Disney, Mattel, the
Gap—now have programs in place that combine codes of conduct,
in-house assessment, and assistance from third parties to monitor supplier
compliance with these codes.

The public, however, is skeptical about the sincerity and effectiveness
of these efforts, and given the continuing scandals, rightfully so.
This skepticism has led to the proliferation of independent monitoring
and third-party social certification programs in the United States and
Europe. Consulting and financial auditing firms such as Ernst &
Young, PricewaterhouseCoopers (PwC), SGS International Certification
Services, Cal Safety Compliance Corporation, Bureau Veritas Quality
International, and Det Norske Veritas have recognized this growing market
and begun to offer themselves as social inspectors. PwC and Cal Safety
conducted over six thousand and ten thousand social audits last year,
respectively.

But skepticism and critiques of the audits performed by these firms—audits
paid for, after all, by client companies13—has
led to the establishment of third-party systems for evaluating and certifying
monitors and for systematically comparing factory performance. A growing
number of NGOs compete in this certification market. For example, the
Fair Labor Association (FLA), convened by the Clinton administration
in 1996, is the most advanced but quite controversial. The FLA will
certify its first external auditors in early 2001 and hopes to begin
the auditing which will lead to certifying sweat-free brands by the
end of the year. SA8000, created in 1997 by the Council on Economic
Priorities (CEP), is patterned on the ISO family of standards and requires
corporations to hire certified auditors to evaluate the conduct of individual
factories. The Clean Clothes Campaign, made up of a coalition of activists
across Europe, plans to establish a foundation that will certify monitors,
collect funds from member firms, and then pay monitoring organizations
directly. The Worker Rights Consortium (WRC), developed by the United
Students Against Sweatshops (USAS) in 1999, focuses on forcing out information,
creating verification systems, and being proactive about inspections.
The WRC differs from the other models in that it will explicitly not
certify company compliance with a code of conduct or standard.

The Next Step
Regulatory innovations, corporate initiatives in reaction to ethical
consumerism, and the spread of third-party audits and certification
programs create building blocks for a coherent response to international
labor abuses, but don't yet constitute one. The regulatory innovations
have not crystallized into a robust, comprehensive system in the environmental
area. In their present form they scarcely constitute a direct model
for labor regulation. Consumer activism and corporate responses to it
are still too narrowly focused on brand-sensitive firms. And, even putting
to one side the problem of limited scope, the proliferation of certification
bodies and monitoring businesses means there is no common metric by
which to credibly compare companies. Without such a level playing field,
firms can't demonstrate the sincerity or the effectiveness of their
workplace efforts to workers or consumers. And even the best of these
programs still lack much information about the best means to implement
real improvements for workers after problems are identified.

Ratcheting Labor Standards addresses these obstacles systematically.

Principles
Four principles—transparency, competition, continuous improvement,
and sanctions—can guide activists, consumers, public officials,
and managers in building an encompassing framework to organize these
efforts.

The principle of transparency suggests a world in which consumers,
workers, activists, and the public at large have the information they
need to accurately and confidently identify initiatives to improve labor
standards, gauge the results of those efforts, and compare the successes
of firms, localities, and even nations against one another.

There are many opponents and few champions of transparency in labor
standards. No firm wants to be the first to open itself to public scrutiny.
Those who have unilaterally exposed themselves to public examination
often have been punished, and their experience makes them, and others,
reluctant to continue. In May 1998, for example, Reebok joined with
an Indonesian organization called Insan Hitawasana Sejahtera (IHS) to
improve working conditions in two factories producing Reebok athletic
wear in Indonesia. Following the plan of the project, called Peduli
Hak ("Caring for Rights"), the group released a report detailing shortcomings
in factory operations, such as minimum-wage violations, illegal overtime,
hazardous chemicals and machinery, and poor ventilation and lighting.
Factory managers took steps to address nearly all of the issues identified
in the report. They invested over $500,000, and achieved substantial
improvements in many areas.

To the dismay of Reebok executives and IHS, however, activists and
journalists used the report as an exposé opportunity to publicize
the violations at these facilities. Without the ability to compare the
condition of these factories to those of its competitors, Reebok and
IHS suffered severe public rebuke rather than the kudos they may have
deserved.

And even in the absence of such perverse incentives, impulses to secrecy
make companies reluctant to disclose even the most basic details of
their operations. Private and nonprofit social-auditing firms often
consider their methods and results to be sources of competitive advantage
and proprietary knowledge. Transparency also ranks low on the agendas
of many activists, who typically marshal their resources to secure more
immediately tangible programs or codes of conduct from corporations.

Against these obstacles, some activists have recently begun to demand
that multinational producers disclose the locations of their production
facilities and those of their suppliers. Even such basic information
can help establish whether companies are complying with their stated
codes of conduct, and can lay the groundwork for documenting conditions
in their facilities. Firms initially balked, and complained that such
disclosure would jeopardize crucial trade secrets. But several large
producers, responding to pressure from student groups, have agreed to
disclose the locations of suppliers that produce goods that are branded
with university names.14 Nike has raised
the bar for transparency, perhaps easing the path for others to follow,
by releasing internal social-auditing information. Its reports included
the number and type of violations (wages, child labor, health, and safety)
of its internal code found at some of its seven hundred factories, and
the action plans of these factories to address the violations.15
The company calls this program "Transparency 101."

These developments hint at a vision of full social transparency. One
of its mechanisms might be databases that collect social performance
metrics such as facility locations, wage levels, workforce-age profiles,
health and safety conditions, environmental impacts of multinational
producers, and their long supply chains. Beyond actual social performance,
however, full transparency also demands that firms disclose their methods
for monitoring social performance and procedures for improving workplace
conditions and eliminating legal and code of conduct violations.

Full transparency would make possible the second principle of RLS:
competitive comparison. High-profile companies currently compete
informally to protect and build their reputations as socially responsible
actors. When Nike responded to critics by disclosing the locations of
44 facilities producing goods for universities on its Web site, five
of its competitors—Jansport, GEAR for Sports, Champion, EastPak,
and Russell—quickly followed suit. But detailed information—for
example, who works in those factories, their working conditions, their
pay, and their hours—is not yet available.

More complete and transparent performance data of this sort would enable
governments, pressure groups, publics, the media, and companies themselves
to make precise and quick assessments of labor conditions of firms in
comparison to their competitors. It would expand the scope of companies
currently vying for consumer loyalty on social grounds because those
who refused to socially compare themselves would be presumed to be very
poor performers. Transparency would create an even playing field for
this competition, and so firms like Reebok would be rewarded, instead
of punished, for bold innovations like its Peduli Hak initiative.

The third principle of RLS is continuous improvement in both
firm social performance and labor standards. This grows out of the principle
of competitive comparison. Social and market pressures would push firms,
perhaps working with public agencies, NGOs, or unions—to constantly
develop new methods of improving occupational health and safety, labor-management
practices, and the like.

Nike's recent series of labor initiatives, each of which was superior
to its predecessor, illustrates how social and competitive pressure
can generate continuous improvement in labor performance. Responding
to early protests and a number of exposés regarding its treatment
of workers in countries like Indonesia, Nike adopted a code of conduct
for itself and its manufacturers in 1992. In response to complaints
that these codes were without force, the company hired Ernst and Young,
among others, to conduct external audits of its suppliers' compliance
with the code. After critics revealed serious omissions and errors in
these reports, Nike responded by incorporating social priorities into
its regular supplier management practices, in programs called SHAPE
(Safety, Health, Attitude, People, and Environment) and MESH (Management,
Environment, Safety, Health), which were modeled on ISO 14000 and other
labor management principles. Under continuing activist scrutiny and
pressure, Nike eventually settled on hiring PwC to monitor labor and
environmental conditions in all of its factories worldwide. These monitoring
programs, while still coming under criticism, have resulted in reductions
of orders and cancellation of contracts from facilities with serious
social violations. Even more recently, the corporation has embarked
on several partnerships with local nongovernmental organizations and
launched its "Transparency 101" program.

Knowledgeable critics contend that these efforts are not enough. Still,
the company's steps do indicate serious responses. More importantly,
some of these measures empower observers to assess the veracity of its
claims and actual progress. Nike has perhaps been on the hot seat with
regard to labor standards longer than any other multinational corporation,
and its painstaking initiatives result in large measure from this pressure.
RLS aims to spread this attention and compulsion to many more firms,
and thus broadly engender the dynamic of continuous improvement in workplace
conditions.

If this were done, the norms of acceptable social performance, or labor
standards, could emerge from evolving practices. As firms improve, the
standards should regularly become more demanding. This dynamic encourages
producers to seek (and publicly explain how they are doing so) novel
ways to improve their labor conditions and outcomes. It would be a race
to the top in which firms sought to outdo one another in social performance,
just as they now compete on more conventional dimensions. We constantly
demand better quality and prices from the products that firms produce.
Why should we settle for fixed, minimum standards in workplace conditions,
rather than demanding that those improve as quickly as economic and
technological conditions permit?

The final principle of RLS involves sanctions. Many of the developments
that inform this approach—such as protest and consumer response,
social accreditation and auditing schemes, and ethical consumerism—occur
voluntarily through civic action and corporate response. More forceful
regulatory institutions backed by punishments, however, are necessary
to extend and deepen the promising dynamics behind these trends. The
full system of transparency, competition, and continuous improvement
requires both formal and informal sanctions. Since the RLS approach
offers distinctive methods for setting standards and achieving compliance,
its basis of sanctions also differs from conventional regulation, where
firms are punished for failing to meet minimum performance criteria.
Again, we must look for alternatives to traditional sanctions (which
punish firms for failing to meet established standards) because these
can encourage firms to evade the monitoring and comparison that is essential
to improving labor conditions.

Instead, RLS would use public power to dislodge information that would
in turn trigger more nuanced and ultimately powerful incentives to improve
social performance. Sanctions should, therefore, be applied in a way
that advances the prior principles of transparency and continuous improvement.
On the former, firms that fail to disclose their labor outcomes or monitoring
methods should be presumed to have something to hide, and be punished
for violating the first norm. On the latter, truly recalcitrant firms,
deserving of the harshest castigation that the regime can offer, are
those whom comparison identifies as laggards in labor performance and
who fail to adopt measures that have proven effective for their peers.

Practice
From the top, RLS would be governed by a council that perhaps emerges
from one of the current nongovernmental social-certification organizations
or from a collaboration between intergovernmental organizations. That
governing umpire would regulate two kind of entities: firms and monitors.

Firms in an RLS regulated sector, say footwear or textiles, would each
select a monitoring entity and abide by its particular protocols. In
RLS, monitors are organizations that collect and verify social-performance
information and help firms comply with their labor standards. Private
social-auditing concerns, the internal labor compliance staff of multinationals,
and public regulatory agencies such as state and national departments
of labor, each currently perform these functions. Firms would be required
to report wages, workforce profiles, environmental and labor management
systems, and similar elements of social performance to their monitor.
They would also submit to the latter's inspection and verification protocols
and social-management procedures. RLS would also require firms to periodically
open themselves to independent audits from NGOs, governmental bodies,
or even unions to prevent collusion and assure veracity of reported
data.

These monitors would then rank the social performance of firms under
their purview. Monitors would be required to report these rankings,
the methods used to derive and verify them, and basic social performance
data of firms to the governing body. This umpire would assure the comparability
of the information on key dimensions and disseminate much of it publicly.

These arrangements would create a two-sided, mutually reinforcing competition
between firms on one hand, and monitors on the other. Firms that are
confident of their outstanding social performance would seek out the
most credible monitoring organizations to verify their accomplishments.
The best monitors would seek outstanding social performers in order
to hone their evaluative skills, build their reputations, and expand
their influence. In the first instance, this process would establish
a "competition" of sorts in workplace conditions and labor performance
among the regulated entities. Firms would vie to show consumers and
regulators that they are better than their competitors.

In the medium term, the RLS framework would generate a vast amount
of information that does not currently exist about how firms actually
perform socially and about how to improve that performance. This knowledge
could be used by an array of actors and generate complementary competitive
pressures on firms. Hundreds of millions of socially sensitive consumers
would utilize these data in their purchasing decisions. Journalists,
activists, and investors would use the information to shame poorly performing
companies. They would also use it to expose poor monitors and demand
increased veracity. Responsible firms could assume that their behavior
would be rewarded and irresponsible firms would fear embarrassment,
pressure campaigns, official sanctions, and, worst of all, loss of market
share. Firms themselves would therefore use this knowledge to benchmark
their performance and to learn how they might improve it.

Perhaps most importantly, this knowledge would inform a wide-ranging,
inclusive, and often heated public debate on global labor conditions.
Participants in this debate would argue for particular standards and
improvements—with respect to child labor or workplace health—for
example, by referring to the successful, and therefore feasible, efforts
in various contexts. Pushed by this public debate, officials at local,
national, or international levels could use information generated by
RLS to formulate minimum substantive labor standards based on actual
performance and procedural standards for improvement. They might also
use the data, as some regulators now use TRI environmental information,
to better enforce existing regulations.

It is crucial that the voices of workers in developing countries be
present in this debate. Though international labor standards are pursued
in their name, they are too seldom heard in discussions about standards
and enforcement. RLS offers a way to connect the knowledge and preferences
of workers to the power of well-intentioned consumers and activists
in wealthy nations. RLS aims to enhance the conditions of workplaces
without the protectionist effects that can come from uniform standards.
RLS derives its labor standards from the best practices of workplaces
under similar economic circumstances. These standards are demanding
because they are based on what the leaders have done, yet demonstrably
feasible because they have been implemented under competitive and comparable
conditions. The goal of these demanding and feasible labor standards
is to make workplaces in developing countries as good as they can be
without imposing requirements that drive investment and employment away.
Striking that delicate balance will require the knowledge, and ultimately
the judgment, of the workers in these facilities.

That balance, moreover, will change over time as firms and workers
enhance their social performance possibilities. RLS standards would
therefore be periodically revised—ratcheted upward—to reflect
these changes. Unlike conventional regulation, these corrigible yet
enforceable standards would be the product—not the starting point—of
a process that was centrally focused on producing widely accessible
and accurate knowledge of actual practices and deploying that knowledge
to improve practices over time.

Getting There
RLS principles are now expressed in a limited set of cases, such as
Nike and other high-profile firms. How might they become a wider regulatory
framework? We can envision at least two roads to begin building RLS.

On the first, one of the existing nongovernmental, multi-stakeholder
workplace monitoring initiatives—such as the Clean Clothes Campaign,
FLA, Workers Rights Consortium, or SA8000—could embrace RLS as
an expansion strategy. These programs currently compete with one another.
One entity, however could differentiate itself from the others through
a focus on transparency and disclosure that breaks with now dominant
policies of confidentiality and proprietary knowledge. This innovation,
while scaring off some corporations fearful of revealing current practices,
would make this organization the most credible, encompassing, and capable
social-certification entity. This credibility would allow it to impose
significant disclosure requirements on its associated firms and monitors,
to rank each of them on their social performance, and to set the terms
of open comparison for other firms and monitors. The WRC may be closest
to moving in this direction, as its university members are least likely
to oppose broad public transparency and comparison.

Alternatively, transnational organizations such as the ILO, the United
Nations, or the World Bank could begin to build RLS. All three claim
to be moved by sincere concern for the impact of globalization on labor,
the environment, women, and native peoples. In addition, the Bank, given
its dedication to free trade and free markets, may see RLS as a lesser
evil compared to the imposition of trade clauses. Since world public
opinion demands some response to scandalous labor conditions, the Bank
may prefer a system based on transparency, in which firms play an important
role in determining operational details, to regulation imposed by distant
central authorities.

One or several of these international bodies might begin by establishing
an umbrella stakeholder group, composed perhaps of corporate, national,
NGO, labor, and monitoring firms, to begin a formal process of building
RLS. This body would set minimum performance and procedural standards
for firms. It would also require them to report on their own monitoring
protocols and results, and then publicly disclose this information.
This organization could be a precursor or sponsor to the super monitor,
or umpire-governance body. A key first step in this process would be
to call together the existing monitors and certification bodies for
an initial "transparency event" in order to discuss the ground rules,
objectives, demonstration cases, and first steps to establishing RLS
regulation.

By now, even sympathetic readers may suspect that we advance by wishful
thinking and assume key actors share our perspectives and goals, when
even casual inspection of the newspapers suggests they do not. More
bluntly, many will suspect, and others firmly believe, that the World
Bank, like the International Monetary Fund (IMF), prefers a deregulated
world, one in which labor is disciplined by the market and firms by
each other. And if the ILO is a promising partner, why are NGOs so prominent
in new movements that the ILO, given its mandate and history, should
be leading?

There are other reasons one might be doubtful. What about national
trade unions and regulatory authorities, the traditional backbone of
labor protection in the developed economies? Are they meant to stand
idly by as the rest of the world ratchets itself into a new regulatory
regime? If not, what part might they play in shaping new strategies
and institutions? In short, haven't we been far too hasty in jumping
from economic and social trends to institutional answers, assuming in
the optimistic rush that major actors will automatically shift to new
roles in RLS?

In response to these doubts, we argue that the World Bank could become
an important collaborator in the new system. Many will question whether
institutions like the Bank could, or would, become an ally for forceful
labor standards, but we argue that it is already being transformed in
ways that could belie its reputation as an enemy of regulation. Space
permitting, a case for the ILO's cooperation could also be made. We
also argue that national regulators and trade unions, whose opposition
could block RLS, might come to see this initiative as an opportunity
to advance their own internal reforms.

The Bank
The transformation of the Bank grows directly out of its current, discrete,
crisis. The Bank's role in its traditional business of financing major
infrastructure projects such as dams and roads in developing countries
is being eclipsed. For one thing, as demand for such project finance
has grown, private lenders have entered this market, providing funds
at affordable rates without the red tape that encumbers Bank transactions.
For another, the Bank's recurrent public pummeling for the adverse environmental
and social consequences of its largest investment projects have reduced
the areas in which the Bank is able to operate.

Without a clear mission in financial stabilization or infrastructure
development, the Bank is left with "softer" tasks, which are captured
in its new self-characterization as "the knowledge Bank": fighting official
corruption, fomenting the rule of law, improving environmental protection,
encouraging entrepreneurship, and redesigning social protection systems.
All of these, however, require the same starting points as RLS: increased
transparency, heightened accountability, and decentralized learning
through the local adaptation of best practices. Unsurprisingly, therefore,
many ground-level Bank officials who participate in these project areas
already have experience using best practices to fix local goals and
building problem-solving coalitions to achieve them. This new breed
of Bank staffers often bring NGOs and official institutions together
to define goals and assess progress. Indeed, they often use shifting
alliances of this kind against entrenched interests, such as corrupt
government agencies. For this group within the Bank, RLS could help
to authorize and formalize their own methods and strategies.

But RLS also appeals to higher-ups at the Bank for reasons of convenience.
Powerful governments with representatives on the Bank's board of directors,
such as the United States, have in recent years pressured the Bank to
deny loans to countries that violate the ILO's core standards. Bank
officials demur at the prospect of becoming an enforcement agency for
the ILO, and some embrace RLS as a possible counterproposal. In emphasizing
competition as a means of stopping bad practices and diffusing better
ones, RLS sounds a familiar chord in the Bank: the new "knowledge Bank"
professes to be even more "market driven" than its predecessor.

The appeal is not just tactical and terminological. At least some officials
in the Bank see the kind of integrative knowledge-pooling used to build
the "soft infrastructure" of working schools, reliable health care,
and clean government as a kind of re-regulation. In this light, RLS
is compatible with, and perhaps in some sense a model for, an emergent
regulatory regime. Exploration of RLS can play a small part in the re-orientation
of Bank strategy. It can, moreover, play a related operational role:
pressed by human rights advocates and local NGOs, the Bank has already
adopted policies requiring it to consider the impacts of its activities
on the environment, on indigenous peoples, and on the condition of women.

It does not follow from all this that the Bank is a partisan for RLS.
But neither is it an adversary with inimical interests. There is no
more and no less than a real possibility that the Bank could link internal
reorientation to institutional participation in the creation of a new
kind of labor standard along the lines of RLS.

Unions and Regulators
Consider, finally, the potential effects of RLS on trade unions and
regulatory authorities. These organizations are struggling against a
marginalization that calls into question their traditional roles and
effectiveness. Some labor leaders and regulators may fear RLS as yet
another wave in the tides of deregulation and economic transformation.
They may identify it as part of the family of privatized, self-regulation
initiatives that chip away at public regulation. Such initiatives seem
to strive for standards without regulators, in which corporations monitor
and improve themselves on their own terms. Critics charge with good
reason that such programs offer scant social protection.

But, as we have tried to make clear, RLS aims not to deregulate, but
rather to re-deploy public power in ways that extend its regulatory
reach and wisdom. Those who misread the proposal as a concession to
unfettered markets will also miss many novel ways in which RLS can strengthen
the hands and extend the horizons of those who have long championed
workplace improvements.

Officials in national and local regulatory agencies, for example, could
use information in RLS to bolster their own enforcement activities by
identifying local violators, just as some environmental agencies now
use TRI. A more ambitious step would be legislation requiring domestic
firms to participate in RLS. This would shift much of the burden of
inspection and compliance monitoring from national regulators to the
international regime, allowing the former to concentrate on the worst
performers. States could use the performance standards and benchmarks
that emerge from RLS to adjust their own official labor standards or
to create a differentiated set of "performance tracks." At the end of
this harmonization trajectory, states could transform their own regulatory
systems from fixed-rule to ratcheting by requiring domestic firms to
score high on RLS measures or face sanctions. Along the way, regulatory
agencies could join RLS as certified monitors. This would compel them
to compete with and learn from similarly certified regulators in other
countries, private sector innovators, and capable NGOs.

A similar logic applies to unions. At the least, unions participating
in RLS could gain otherwise unobtainable information about intricate
supply chains. Unions could use RLS-generated information to learn about
best and worst practices in an industry, and they could use this data
to inform and strengthen their position during collective bargaining.
RLS rankings of particular corporations would also allow them to identify
the worst performers and target them through corporate campaigns, boycotts,
or shareholder actions.

As a further step, unions might themselves become certified monitors.
Many labor leaders claim that the best monitors of any workplace are
the workers themselves, and RLS allows them to make this claim credible.
As RLS is an open system that encourages participation from all fronts,
trade unions would certainly be a welcome source of monitoring expertise.
The best union monitors could use RLS rankings to show that they were
superior to private-sector, non-worker competitors. By showing credible
third parties that they monitor better than others—because, for
example, they have better access to information from workers on real
factory conditions and have the expertise to propose remedies to the
problems they uncover—they would be renewing the public's trust
in their claim that they are the most capable advocates of worker interests.
By ranking monitors and acting as certified monitors themselves, unions
that participate in RLS would dramatically expand their knowledge of
workplace problems and how to fix them. In time, they would renew and
improve the services they provide and thereby reclaim the loyalty of
current members and attract new ones as well.

Since workers must form coherent organizations to conduct social audits
and workplace monitoring, freedom of association is an essential implication
of RLS. Unions could therefore also use RLS to press governments and
corporations to respect the freedoms that workers require to collectively
understand and improve their workplaces. Just as its market-like characteristics
of competition and transparency should generate support from corporations
and the World Bank, RLS's democratic stress on inclusiveness, participation,
and association should resonate with trade unions and NGOs.

A Global Problem
Even as contemporary globalization makes us complicit in terrible abuses
of workers, it opens up new possibilities for public action to mitigate
these wrongs. These possibilities come from the increasing capabilities
of corporations—under the pressure of public revulsion at their
social practices—to improve workplace conditions through the same
sophisticated management strategies that make them champions of the
current globalization in first place.

We have argued that the best way to exploit these possibilities is
through a new kind of labor regulation—Ratcheting Labor Standards—that
relies on information, competition, and the participation of not only
regulators and firms, but also workers, consumers, journalists, investors,
NGOs, and the public at large. RLS promises labor standards that are
feasible because they are based on actual best practices, and non-protectionist
because they take into account differences in contexts of economic development.
These labor standards, moreover, join the limited enforcement power
of government to the potentially great disciplinary forces of social
pressure and market competition. They aim, finally, not at establishing
a minimum fixed set of core workplace rights, but rather at creating
a process that makes workplaces as good as they can be, and better over
time, as companies become more capable and nations more developed.

Our proposal for RLS, like the regulatory project it is meant to advance,
raises at least as many questions as it answers. Is the approach only
appropriate for multinational companies who sell to consumers in rich
countries? Or can it also apply to commodity producers or those who
sell primarily to domestic markets in developing countries? We believe
that labor under the latter conditions will benefit from the general
RLS approach to regulation, but the institutions and programs will obviously
differ. Does RLS improbably require the majority of consumers to be
sensitive to labor issues? Or, can relatively few attentive consumers
and activists combine with media exposure, investor concerns, and public
grading to leverage changes in the behavior and priorities of corporations?
We believe that reputation is so critical today, and improving labor
standards so feasible, that a public ranking system like RLS would amplify
even relatively few voices into substantial workplace improvements.
Already, the tiny fraction of customers of Nike, Reebok, and Mattel
who have expressed concerns on labor issues have induced substantial
shifts in corporate policy. But will RLS indeed make this increase in
the scope of reform self-reinforcing?

The best way to answer these and other crucial questions, we think,
is to engage in discussion with a view toward actually constructing
the system. Given how many building blocks of RLS are already in place,
and also how many possibilities for critical review would be afforded
by even a flawed version of the system, the best way to test and improve
RLS is to create the transparency and comparability of monitoring on
which the full-fledged regime depends. Sometimes looking while leaping
can be prudent.

Earnest engagement in such discussion will not be easy for many, as
elements of RLS are strange and potentially threatening. Many corporate
actors want an even playing field on which to establish their credibility
as ethical actors, yet fear public scrutiny and transparency. For many
NGOs and unions, "competition" smacks of privatization and market violence,
and collaboration with firms to raise labor standards smells of co-optation.
Yet some activists, impatient for progress, have pioneered impressive
cooperative workplace monitoring and improvement projects with willing
multinationals. Many official regulators are loathe to endorse a regulatory
approach that depends upon so many forms of public participation and
creates intimate connections to the private sector. Still, these same
regulators recognize the limits of their conventional strategies in
the current economic environment and are searching for more effective
methods.

Our hope in this essay is to offer a labor standards strategy that
allows us all to re-examine and test our programmatic commitments without
sacrificing the possibilities of concerted action. How else can we hope
to find effective solutions to the new misery of the global economy?
•

Archon Fung is assistant professor at the John F. Kennedy School
of Government at Harvard University. He has previously written for Boston
Review about environmental
policy (with Charles Sabel) and about political
strategy. (with Dara O'Rourke and Penn Loh). Dara O'Rourke
is assistant professor in the Department of Urban Studies and Planning
at the Massachusetts Institute of Technology. Charles Sabel is
professor of law at Columbia University. He has previously written for
Boston Review about globilization
and environmental policy.

2 David Weil, "Leveraging Time: Regulating
U.S. Labor Standards in the Age of Lean Retailing" (Manuscript, 2000).

3 Massachusetts Toxics Use Reduction Program,
Evaluating Progress: A Report on the Findings of the Massachusetts
Toxics Use Reduction Program and Evaluation (Lowell, Mass.: Toxics
Use Reduction Institute, March 1997).

4 This account is taken from National Academy
of Public Administration, Environment.Gov: Transforming Environmental
Regulation for the 21st Century (Washington, D.C.: National Academy
of Public Administration, 2000).

7 World Bank, The Greening of Industry
(Washington, D.C.: World Bank, 1999).

8 They conducted similar surveys in 1995
and 1996, with similar results. Approximately one thousand people responded,
and the data were weighted to reflect demographic characteristics of
US adults ages eighteen and over. Authors report a margin of error at
the 95 percent confidence level of plus or minus 3 percent. See http://www.marymount.edu/news/garmentstudy/.

sup>9 Richard B. Freeman, "What Role for Labor Standards in the Global
Economy," (12 November 1998).

10 See: http://www.environics.net/eil/millennium/.

11 Social Investment Forum, 1999 Report
on Responsible Investment Trends in the United States, 4 November
1999.